States Look at Online Sales Taxes

To date, people using the Internet to buy goods across state lines have not been charged sales tax. The question of whether this continues or is an idea whose utility has passed seems to be coming to a head.

It’s an important issue for businesses for one direct and one indirect reason. The direct reason, of course, is that companies’ ability to sell in this manner will be affected if the rules change. The indirect effect will be that usage patterns will change if Internet shopping slows. Technology and contention algorithms are computed against the heaviest usage patterns (telephone contention schemes are determined against the ultimate: “if there is an earthquake on Mother’s Day”). If those extremes moderate, the algorithms and technology implementations to support them will change as well.

Grant Gross at Computerworld reported yesterday that a new law in South Dakota requires out-of-state retailers to charge residents of the state sales tax on most purchases. That, he writes, could lead to a test of a 25-year-old Supreme Court ruling that prohibited the taxes. This could lead to a domino effect:

Unless courts overturn the South Dakota law, it will embolden other states to pass similar Internet sales tax rules, critics said. The law could "set the course for enormous tax and administrative burdens on businesses across the country," Steve DelBianco, executive director of e-commerce trade group NetChoice, said in a statement.

The story says that the state has already filed lawsuits aimed at forcing online retailers to follow the law, which went into effect last Sunday, and that proponents of the new law argue that it is unfair to have an unequal playing field forcing brick-and-mortar stores to charge higher prices.

The story quotes state representative Chad Caldwell, who said that the law mandates stronger enforcement of existing law and is not a new tax. The effect, at the end of the day, seems the same.

In Louisiana, Speaker Pro Tem Walter Leger is working to strengthen existing tax laws. The legislation, which has been assigned to the Ways and Means Committee, would “require online retailers to submit to the Department of Revenue a list of all customers who have made purchases greater than $250,” according to the Greater Baton Rouge Business Report.

Widespread changes to implement online sales taxes would be a big deal. Enabling online retailers to avoid sales tax was an idea that clearly made sense in an earlier time in the Internet’s history. The success of online shopping just as clearly justifies looking at these rules anew.

Carl Weinschenk covers telecom for IT Business Edge. He writes about wireless technology, disaster recovery/business continuity, cellular services, the Internet of Things, machine-to-machine communications and other emerging technologies and platforms. He also covers net neutrality and related regulatory issues. Weinschenk has written about the phone companies, cable operators and related companies for decades and is senior editor of Broadband Technology Report. He can be reached at cweinsch@optonline.net and via twitter at @DailyMusicBrk.